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Saturday, August 30, 2008

Bob Brinker's Moneytalk, August 30-31, 2008

Bill Flanagan replaced Bob Brinker this weekend. Sunday, Flanagan said that in this issue of Barron's, there is a rundown on the expectations for the stock market by nine of their strategists. The average forecast-consensus calls for the S&P 500 Index to end the year at 1363 -- that's about 5% higher than it is now. That's rather conservative, ".....but the good news is if they see muted gains over the next four months, almost all of them see very little limited, further downside for a stock market that's already fallen 11% in 2008, and 16% from October 2007." (In June/July, all of the stock market indexes dropped more than 20%)
Bill also spoke about an article by Bill Stone, Chief Investment Strategist at PNC Wealth Management. Bill Stone wrote that with yields on cash and bonds so low, it won't take much for stocks to outperform both over the next 12 months, especially if investors gain enough confidence to deploy their cash stashes. (Go to PNC Wealth Management and enter Bill Stone in their search box and it will take you to his outstanding articles.) Here are some excerpts:
Fear of the Unknown

Thomas Mann wrote that the active enemy is the unknown—something that investors tend to fear more than even known negatives. One of the largest known negatives—a bear market—has now reared its head. With the market recently breaching the bear market threshold, we thought it might be helpful to answer some common questions regarding a few of the remaining unknowns and to present recommendations we believe investors should take in reaction to the situation.

Q: We have officially entered a bear market based on an over-20% decline from the S&P 500®’s October high. How long will this last?

Bear markets since 1956 have lasted about 13 months, with a range of 3-31 months. The market peaked in October of last year, so we are already more than nine months into the bear market. The two longest bear markets were marked by higher inflation (1973) and extreme valuation (2000). One cannot really estimate with any precision how long any bear market will last, but we are already through the majority of the duration of an average bear market and well beyond the three-month duration of the 1990bear market, which was marked by financial distress most similar to today.

Q: How bad does it get?

The worst is typically over when the market reaches the 20% decline. In only two (1973 and 2000) of the past nine bear markets was the S&P 500 lower in the 12 months following the official start of the bear market. The average decline was 31.7%, but the bear markets of 1973, at 48.2%, and 2000, at 49.1%, were by far the worst. In those two cases either inflation moved much higher or valuations were very high at the peak, but we do not believe either of those conditions exists today. If the two extreme bear markets are removed, the average decline falls to 26.9%."

Saturday, Bill Flanagan said the following about the stock market: "Almost obliterated the market -- all the news this week about politics -- everybody had something to cheer about, but not on the market. Shares fell Friday -- light week of trading -- not enough to really get the excited about, but the good news was that in August as whole, the Dow added 1 1/2% while the S&P rose 1.2% and the Nasdaq, 1/8%...........Just to bring you up to date, so far this year the Dow Jones Industrials is off 12.98, the S&P 500 off 12.54, Nasdaq 100, 12.19, the Composite Nasdaq, 12.74, the Wilshire 5000 off 11. 45, and the Russell 2000 off 3.46 -- so far for the year 2008."
Later in the program, Bill told a caller that he believes the stock market will recover, but he has no idea when....The remainder of the program was so grindingly boring, I had to keep moving to stay awake. 8~) I noticed that the Vanguard Funds advertisement that says they recommend a "sensible buy-and-hold" approach to investing, ran several times today.
In the opening monologue, Flanagan talked at length about politics. He almost shot himself in the foot when he started talking about Sarah Palin (John McCain's choice for VP), he almost called her a "young girl." He stopped himself halfway through saying "girl" and said "woman." I laughed out loud, but basically I was VERY offended -- and I'm not radical feminist. I'm just a woman who expects the same respect that is given to men. I've never heard anyone even come close to calling Barack Obama a "young boy."


In spite of Mark Hulbert giving Bob Brinker a "mulligan" on his massive and disastrous QQQ-trade of October, 2000, Brinker's Marketimer no longer appears in the Hulbert Financial Digest "Top 5 Performers Through 7/31/2008 -- Total Return Ranking" for 5, 10, 15, 20, or 25 years."

My favorite Brinker Historian, Investing wrote about the subject:
"............. So Hulbert wants you to buy his rag to see which rag is doing well today. (Hulbert does this for mutual funds as well) And of course there is always some period over some time and with some qualifier that almost every marketimer looks like they are "above average".

Unfortunately just like Brinker you have to pick your times for a marketimer to outperform. Within the last couple months he is wildly bullish and blasting the bears --and within a few weeks we were in a bear market.

Brinker is much of a buy and holder (and sometimes 'hider' if the investment goes badly) so he does not suck as bad as many who make more timing moves. Overtime, it is obvious that just like all the academics say--there is no evidence that Marketiming as practiced by Brinker adds anything but the liklihood of poor performance over the long run.

In 88, Brinker was 100% cash for the only time in his history and a raving bear. Unfortunately the market went up instead of down and he wandered around babbling for 3 years until becoming fully invested again.

Once Brinker started his portfolios performance all over.--a 'do-over" that is never available at the brokerage for people taking advice. :)

In 2000 Brinker first said he was "NOT BEARISH" and left 40% in the market. In August he said he was "bearish" but only took another 5% out of the market. (Recall Brinker always pounded the table that if he was ever bearish he would have nothing in equities)

Then in October Brinker told everybody that wanted to make 20-40% in two to four months all they had to do was buy QQQs. So he ended up concentrated in the worst sector--that is still just half what it was in 2000, while the broader market has made investors nearly whole. Following Brinker you had as much as 70% or so in the market in areas that vastly underperformed the general market--TEFQX and QQQqs. So your marketiming hero Brinker's timing sucks.

Now he's no worse than most selling a product that absolutely is worthless and does not work (ask Professor Malkeil--not Hulbert who makes a living selling ratings of which marketimer has the hot hand--totally worthless information as well).

The difference Brinker brings to the table is all the deception.

People today would never realize that following Brinker's advice many should have 5% at cost TEFQX that is down 80% 8 years later and 32.5% QQQQ down 50% after 8 years in their portfolios.

Brinker pretends they don't exist.

Slieght of hand may help hide poor performance and boost ratings (albeit with Hulbert's asterik still there showing the deception 8 years later) --but it doesn't do a damn thing for the poor goober or geezer who trusts the guy.

Brimelow, Hulbert's partner at CBS marketwatch said it best.
"Don't use the rent money or retirement money to invest according to a marketimer. Use only money you can afford to lose"---It's truly just like gambling.__Investing


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